Why one-fifth of online product prices will be different tomorrow

About 20% of all online product prices change at least daily, with some of the hottest items changing price every few minutes, according to Michael Paulson, vice president of product and business at Decide.com, an online price-tracking and predictions firm recently acquired by eBay Inc. Being able to respond to those changes quickly can keep a retailer from missing sales opportunities, he says, and that requires technology to update prices automatically based on competitors’ web data.

Paulson discussed how retailers can use re-pricing to drive more sales both online and in stores during a session entitled “Dynamic Pricing: The Price is Right (Now)” yesterday at the Shop.org 2013 Annual Summit in Chicago. Also on the panel were: Amitabh Biswal, manager, merchandising operations at Best Buy Canada Ltd.; Amos Schwartzfarb, a former executive at competitive pricing software company BlackLocus; and Andy Voelker, retail pricing strategy manager at Ace Hardware Corp. Shop.org is the e-commerce arm of the National Retail Federation trade group.

“Dynamic pricing allows hyper-responsiveness,” Best Buy’s Biswal said. For example, a little over a year ago, software and computer seller Hewlett-Packard Co. decided it wanted to phase out a line of tablets that had been selling for about $500, and so it immediately began offering them for $250 on its e-commerce site, he said. Within weeks, the price dropped again—but Best Buy Canada had been able to lower its prices and respond immediately, and thus didn’t end up with shelves of the tablets in stock.

Over the past seven years, Best Buy Canada has built a team of in-house price analysts and refined its use of competitive data that it collects by using software to crawl other retail sites, Biswal said. As a result, the company now updates its online pricesabout two to three times per week in response to competitors, he said.

Competitive pricing data also helps Best Buy to improve its product assortment based on what other retailers sell. For example, Biswal says Best Buy customers used to complain in forums that Best Buy did not offer a low-end HDMI cable, which skewed their overall opinion of Best Buy, even though the cables it did offer were priced competitively, he said. So the retailer added to its product line a $3.99 HDMI cable that its competitors offered, ending the negative feedback. Solving such problems is “easier today with retailers posting most of their assortments and pricing online,” Biswal said.

For Ace Hardware Corp., which oversees a network of 3,500 independently owned Ace Hardware franchises, other stores posting their products and prices online helps the company to spot regional price variations and react accordingly, Ace’s Voelker said. For the last year and a half, the company has used price-monitoring software from 360pi along with IBM Corp.’s DemandTec price, promotions and merchandising analytics technology to track competitors’ prices in about 80 U.S. regions, he said. For instance, air conditioning supplies might be at a premium in South Florida while they are barely selling—and are thus highly discounted—in Milwaukee. “Any given product price can vary by 10% to 20% depending on the region,” he said. Then Ace devises a strategy for each product, such as staying within 5% of competitors’ prices in a region.

“We’re starting to see value now in moving from Excel [spreadsheets] to a price-management system allowing us to go from national pricing to regional pricing,” Voelker said. “We’ve recognized differences in how competitors price across the country for 10 years, but we haven’t been able to act on it.”

The panelists agreed that in the next five years, price-setting will become highly automated, at least for online retailers. In stores, on the other hand, changing prices too often can frustrate customers—imagine a digital price display changing while a customer is carrying an item from the shelf to the checkout. Voelker predicts that for offline sales, tracking competitors’ prices and assortments will instead lead to more personalized mobile offers—for instance, texting a customer a coupon for an item that is discounted elsewhere when she walks into a store. Some Ace Hardware locations have already begun testing mobile couponing.